Executive Summary
MegCo is a private limited company that intends to venture into the UK coffee shop industry. The firm’s operations will entail producing and marketing a variety of specialty coffee.
Furthermore, the firm will provide customers with high quality specialty coffee. This will enable the firm to position itself as best specialty coffee-shop in the UK. In an effort to cope with the intense competition in the UK coffee shop market, the firm will invest in continuous product innovation. As a result, MegCo will be able to align its operations with the changing customer tastes and preferences.
Situational analysis
There are different models that businesses can integrate in an effort to understand the business environment. Some of these models include the PESTLE and the SWOT models (Gilligan & Hird 2008).
PESTLE analysis of the UK market
Best (2009) emphasises that “the PESTLE analysis model outlines the broad industry environment or the macro-environmental factors in which an organisation operates” (p.18). The model categorises the business environment into six factors, which include the economic, technological, political, legal, environmental, political and social factors.
The PESTLE analysis model enables businesses to comprehend and predict the future and hence the likelihood of survival (Best 2009). The chart below illustrates the main PESTLE analysis variables.
Political environment
The UK is characterised by a high level of political stability. This has led to development of an effective business environment. The UK is a member of different economic zones and trading blocs such as the European Union, Organisation for Economic Co-operation and Development and the G20. This presents a perfect opportunity for MegCo to market its products to a large number of customers through internationalisation.
Economic environment
Over the past few years, the UK economy has experienced significant economic fluctuations such as the 2008 global economic recession and the sovereign debt crisis in the Euro Zone which occurred in 2012.
According to Cha (2012), the sovereign debt crisis led to increment in the rate of unemployment with a margin of 11.2%. Consequently, most consumers have adjusted their purchasing patterns because of the high level of uncertainty about the future. Cha (2012) further asserts that “the consumers have reduced their spending on both big and small items such as cars and a cup of coffee” (para. 7).
Despite the aforementioned economic fluctuations, it is expected that the UK will attain full economic recovery in the near future. Therefore, the likelihood of improvement in the consumers’ purchasing power is high. Thus, the consumers will afford various consumer products such as specialty coffee. A study conducted by This Money (2012) shows that increase in retail spending is one of the elements that will stimulate the country’s economic recovery.
Social environment
The UK citizens have developed a strong coffee drinking culture. This is evidenced by the fact that most UK citizens enjoy drinking coffee as they relax. Walsh (2011) opines that “it is estimated that approximately 511 million cups are consumed in the UK every week” (para.3). This trend makes the UK to be a viable investment destination. Thus, there is a high probability of MegCo maximising it sales revenue.
Change in the consumers’ tastes and preferences may affect the firm’s sales. For example, the consumers might shift to other brands of specialty coffee offered by competing firms. Another major social trend is evidenced by the fact that consumers are increasingly becoming health-conscious (Larson 2009). This might affect the firm’s ability to attain its sales objectives.
Technological environment
The high rate of technological innovation in the coffee shop market presents an opportunity for MegCo to produce high quality specialty coffee. Currently, there are different coffee-blending machines which have been developed. Thus, the firm can be able to produce high quality instant coffee.
The emergence of e-commerce presents MegCo with an opportunity to increase its sales revenue by improving its marketing efficiency. Consumers have become technologically savvy in their consumption patterns (Kotter & Schlesinger 2008). Therefore, it is imperative for MegCo to embrace emerging marketing technologies in order to maximise its profitability.
Legal environment
The UK government has implemented comprehensive laws which are aimed at protecting the SMEs. Some of these laws relate to intellectual property rights (IPRs) laws such as patents, trademarks and copyrights, which have made the country very attractive to foreign and local investors (Environmental Leader 2012). Moreover, the UK government has established a number of enterprise zones by offering a 5-year tax-holiday to investors who establish businesses in the special economic zones (Delloite 2011).
Value chain- Michael Port and Porter’s five forces
Grundy (2006) defines the Porter’s five forces as a model that enables businesses to understand the industry in which it operates using five main forces. These forces include supplier power, buyer power, new entrants, threat of competitors and threat of substitutes. Best (2009) emphasises that the model plays a critical role in a firm’s effort to enter a new market.
Rivalry-High
The industry’s competitive rivalry is increased by the presence of large coffee chains such as Starbucks, Caffe Nero and Costa Coffee. These firms have been in existence for a number of years and hence they have developed a strong competitive advantage compared to MegCo which is a new entrant (Miller 2009).
Threat of new entrant-High
The UK coffee shop market has a high market potential arising from the strong coffee drinking culture. Miller (2009) asserts that coffee is ranked the 3rd favourite non-alcoholic drink in the UK. The industry is characterised by a relatively low barriers to entry. For example, minimal capital is required in order to enter the market.
The attractiveness of the market is further enhanced by the fact that the UK government has nurtured an effective legal environment that protects small and medium enterprises. Consequently, the threat of new entrants is relatively high.
Threat of substitute-High
There are numerous substitute products in the UK coffee shop market. Some of the main substitutes to MegCo’s coffee include hot chocolate and teas.
Buyer power – High
The industry has two main types of consumers who include the individual and the institutional buyers. These consumer groups can easily force the coffee shops to adjust their pricing strategies. Moreover, the low switching cost has also led increment in the buyers’ bargaining power.
Supplier power-Low
There are numerous local and international coffee beans suppliers in the UK coffee shop market. This gives the coffee shops a higher edge with regard to controlling suppliers.
SWOT analysis
According to Best (2009), the SWOT analysis model provides an overview of an organisation’s current position. The framework below illustrates MegCo’s SWOT analysis.
Segment – targeting & positioning
The firm’s management team is cognisant of the importance of effective market segmentation. MegCo will segment its market using different demographic and psychographic variables. The firm will target young adults who prefer to relax and chat in a nice place. The second customer group will be comprised of middle age consumers who prefer to relax, and read a book in a calm place.
With regard to psychographic variables, MegCo will mainly target the coffee lovers. MegCo intends to position itself as a high quality coffee outlet. The firm will adopt the slogan ‘drink different’ as its market positioning strategy. Thus, the firm will be able to influence the consumers’ perception.
Marketing objectives
Financial objectives
- First year; MegCo intends to increase its sales revenue to £ 6 million within the first year of its operation. As a result, the firm will be able to achieve the break-even point. The firm will set the price of a cup of coffee at £ 3.49. The firm also intends to achieve a market share of 15% in the local coffee shop market.
- Second-year objectives; the firm intends to increase its market share to 35%. This will enable the gain sufficient market dominance. Furthermore, the firm intends to increase its sales revenue with a margin of 30% compared to the first year.
Non-financial objectives
The firm intends to operate in a socially responsible manner. This will be achieved by ensuring that its operations do not contribute to environmental pollution.
The will be focused at developing a high level of customer loyalty. This will be attained by providing customers with high level of customer service.
Marketing strategy
MegCo is focused towards achieving an efficient market position in the UK coffee shop market in spite of the intense competition from other firms such as Costa, Nero and Starbucks. Consequently, the firm will ensure that it provides customers with high quality specialty coffee.
Marketing mix
Product strategy
MegCo will ensure that its coffee is of high quality. This will be achieved by ensuring that the coffee is effectively blended. Moreover, the firm will ensure its coffee beans are sourced from high quality suppliers. This will aid in maintaining the quality of coffee. MegCo will also invest in continuous product innovation in order to meet the customer’s tastes and preferences (Srinvasan 2005). To achieve the desired level of market growth, the firm will adopt the concepts of market development, market diversification, product development and market penetration as illustrated by the Ansoff matrix below.
The firm will focus on transforming its products from being a cash cow into a star as illustrated by the Ansoff matrix below. As a result, the firm will be able to achieve high market growth and market share.
Pricing strategy
Considering the fact that MegCo is new entity in the UK coffee shop market, the firm will adopt the concept of penetration pricing strategy. This will be attained by setting the price of a cup of coffee at a lower price point compared to the major competitors. A cup of coffee will be retailed at $3.49. Thus, the firm will be able to attract consumers who are increasingly becoming price conscious.
Promotion
Creating sufficient market awareness is critical in an organisation’s effort to penetrate a particular market. MegCo will adopt the concept of Integrated Marketing Communication. Different marketing communication methods, which include public relations, advertising, direct marketing and sales promotion will be adopted (Shin 2013). MegCo will utilise diverse mediums in its advertising process. Some of the mediums that will be adopted include television, radio, print media and online mediums.
Distribution
The ability of the firm to achieve the aforementioned financial objectives will depend on the effectiveness with which consumers can access the firm’s products. Consequently, the firm will establish a number of outlets in different parts of the UK.
Action program
To successfully enter the coffee shop market, MegCo will undertake a number of activities as outlined below.
- December 2013: Conducting a comprehensive consumer and competitor market research.
- January 2014: Establishing the first coffee shop in London.
- February 2014: Launching a comprehensive marketing awareness campaign in London.
- March 2014: Official launch of MegCo’s coffee shop. This will be achieved by holding a public event at the company’s store.
Marketing budget
MegCo projects that it will incur £ 3,000,000 in the process of entering the UK market as illustrated in the chart below.
Implementation and control
MegCo will be committed towards achieving an optimal market position. Consequently, the firm will ensure that the above marketing plan is successfully implemented.
The process of implementing the marketing plan will be assigned to a strong marketing team which will be comprised of marketing experts. Moreover, the firm will conduct a continuous evaluation of its marketing progress by analysing the changes in the size of its customer base, market share, and sales revenue. As a result, the firm will be able to undertake the necessary adjustments.
Reference List
Best, N 2009, T4; test of professional competence in management accounting, CIMA Publishing, Burlington, MA.
Cha, A 2012, European financial crisis has ripple effect on US businesses. Web.
Delloitte: Taxation and investment in United Kingdom 2011. Web.
Environmental Leader: Ford, Starbucks, among most ethical companies. Web.
Gillam, S, Yates, J & Badrinath, P 2012, Essential public health; theory and practice, Cambridge University Press, New York.
Gilligan, C & Hird, M 2008, International marketing: strategy and management, Taylor and Francis, New York.
Grundy, T 2006, ‘Rethinking and re-inventing Michael Porter’s five forces model’, Strategic Change, vol. 15, no. 7, pp. 213-229.
Kotter, J & Schlesinger, L 2008, ‘Choosing strategies for change’, Harvard Business Review, vol. 2, pp. 130-150.
Larson, R 2009, Marketing strategy and alliances; analysis of Starbucks Corporation, Liberty University, New York.
Miller, C 2009, Will the hardcore Starbucks customer pay more? The chain plans find out. Web.
NetMBA: Ansoff matrix 2013. Web.
Shin, K 2013, the executor of integrated marketing communications strategy: Marcom’s manager’s working model, SpringBriefs, New York, NY.
Srinvasan, L 2005, Strategic management, the Indian context, PHI Learning PVT, London.
Theodore, S 2002, ‘Expanding the coffee experience; Starbucks keeps sales brewing with new products, innovation and global expansion’, Beverage Industry, vol. 1, n. 3, pp. 57-62.
This Money: Moody’s could downgrade UK’s ‘AAA’ credit rating in early 2013 if the economy fails to shape up. Web.
Walsh, J 2011, Britain’s caffeine boom; why can’t we wake up without smelling coffee. Web.